TEST OF THE CONVERGENCE HYPOTHESIS ALLOWING FOR CROSS‐SECTIONAL DEPENDENCE

A large empirical literature has investigated whether per capita output converges around a common trend across national and regional economies. The methods used in this literature assume no cross‐sectional dependence even though it is likely to be present and might be important in practice. Chang has devised a promising method of testing for unit roots in heterogeneous panels with cross‐sectional dependence. We apply her method to test whether convergence takes place across three samples of economies: 15 advanced industrial countries; a broader group of 57 countries; and the 48 contiguous US states. We find evidence of convergence for the 15 advanced industrial economies but no evidence of convergence across either the broad group of countries or the US states.     

CROSS‐SECTIONAL VARIATION IN INDIVIDUALS' EARNINGS INSTABILITY

There has been considerable recent interest in earnings instability—the variability of workers' earnings around their expected earnings paths. While previous work has measured trends in instability, often to illuminate trends in inequality, this paper investigates the variation across workers. Data from the Panel Study of Income Dynamics reveal considerable differences in earnings instability across demographic and occupational characteristics, generally in accordance with prior expectations. These results can also be used to develop a person‐specific measure of instability for use in behavioral studies, and it is shown that the resulting metric correlates strongly with several decisions that are plausibly influenced by earnings risk.     

TESTING THE STRUCTURE OF CONDITIONAL CORRELATIONS IN MULTIVARIATE GARCH MODELS: A GENERALIZED CROSS‐SPECTRUM APPROACH*

We introduce a class of generally applicable specification tests for constant and dynamic structures of conditional correlations in multivariate GARCH models. The tests are robust to the presence of time‐varying higher‐order conditional moments of unknown form and are pure significance tests. The tests can identify linear and nonlinear misspecifications in conditional correlations. Our approach does not necessitate a particular parameter estimation method and distributional assumption on the error process. The asymptotic distribution of the tests is invariant to the uncertainty in parameter estimation. We assess the finite sample performance of our tests using simulated and real data.     

WHAT DRIVES THE TIME‐SERIES AND CROSS‐SECTIONAL VARIATIONS IN BANK CAPITAL RATIOS? EVIDENCE FROM JAPAN

This paper documents the time‐series and cross‐sectional variations in bank capital ratios and investigates their underlying driving forces using listed Japanese bank data from 1977 to 2009. We derive an overall framework in the form of a present‐value model to decompose the variation in bank capital ratios into changes in expected future stock returns, profitability and leverage ratios. Moreover, we use the variance decomposition approach to examine the relative importance of these factors. We find that the expected future stock returns dominate the time‐series variation in bank capital ratios, and that the expected future profitability also plays an important role as the expected stock returns in the cross‐sectional variation.     

CROSS‐BORDER MARRIAGE COSTS AND MARRIAGE BEHAVIOR: THEORY AND EVIDENCE

This article analyzes cross‐border marriages between mainland China and Hong Kong (HK). We examine the effects of a reduction in cross‐border marriage costs following an increase in marriage‐migration quotas and the handover of HK to China. We find that cross‐border marriages mainly involve men from the low tail of the HK attribute distribution. We also find that HK women's position in the marriage market and within households deteriorated following the reduction in cross‐border marriage costs and that their disadvantaged position exerts an incentive effect on their labor market behavior. These outcomes are consistent with our matching model.     

CROSS‐HEDGING OF EXCHANGE RATE RISKS: A NOTE*

This note studies the optimal production and hedging decisions of a competitive international firm that exports to two foreign countries. The firm faces multiple sources of exchange rate uncertainty. Cross‐hedging is plausible in that one of the two foreign countries has a currency forward market. We show that the firm's optimal forward position is an over‐hedge, a full‐hedge or an under‐hedge, depending on whether the two random exchange rates are strongly positively correlated, uncorrelated or negatively correlated, respectively.     

RESERVATION WAGES AND THE UNION JOB QUEUE: A SAMPLE SELECTION APPROACH

This paper uses a unique data set of unemployed semi-skilled workers to examine the relationship between reservation wages and the decision to queue for a union sector job. Estimation of selected reservation wage equations indicates that the failure of all previous estimates to model the queuing decision results in biased coefficients. Those workers who queue for a union job are subject to a distinct reservation wage formation process which differs from those not queuing. Moreover, a structural estimate of the queuing decision demonstrates that workers with the greatest differences between estimated reservation wages in the union and non-union sector are the most likely to queue. This estimate of the queuing decision stands as one of the few which focus on unemployed workers. Among other results, women and minorities are more likely to queue for union jobs, all else equal.     

ON FINANCE AS A THEORY OF TFP,CROSS‐INDUSTRY PRODUCTIVITY DIFFERENCES,AND ECONOMIC RENTS*

We develop a theory of capital‐market imperfections to study how the ability to enforce contracts affects resource allocation across entrepreneurs of different productivities, and across industries with different needs for external financing. The theory implies that countries with a poor ability to enforce contracts are characterized by the use of inefficient technologies, low aggregate TFP, large differences in labor productivity across industries, and large employment shares in industries with low productivity. These implications are supported by the empirical evidence. The theory also suggests that entrepreneurs have a vested interest in maintaining a status quo with low enforcement.     

THE IMPACT OF DOMESTIC AND FOREIGN COMPETITION ON SECTORAL GROWTH: A CROSS‐COUNTRY ANALYSIS

This paper examines the impact of competition on the total factor productivity (TFP) of 21 manufacturing sectors in eighteen OECD countries over the period of time 1990–2006. We assume that the source of TFP growth can be either domestic or foreign innovation or technology transfer from the technological frontier. Trade openness, R&D, and human capital can have two effects: a direct effect on TFP (e.g., through innovation) and an indirect effect depending on the productivity gap between a given country and the technological frontier. We find that tougher domestic competition is always associated with higher sectoral productivity. Both import and export penetrations are positively associated with an increase of TFP. However, the channels through which higher TFP is materialized are different: export penetration works through level effect, while import penetration acts mainly when conditional on the level of technological development. The economical magnitude of the effect is not trivial.     

REGULATION AND RISK: A CROSS‐COUNTRY SURVEY OF REGULATED COMPANIES

This paper tests empirically whether regulation characterized by high incentives implies more risk to firms than regulation characterized by low incentives. Using a worldwide panel of 170 regulated companies operating in electricity, gas, water, telecommunication and transportation sectors during the period 1995–2004, I find that different regulatory regimes do not result in different levels of risk to their regulated firms. This result could be driven by a higher level of development of financial markets combined with a sophisticated diversifying behaviour of regulated firms.     

THE ABSENCE OF THE BOOK‐TO‐MARKET EFFECT IN THE TAIWAN STOCK MARKET: A DECOMPOSITION APPROACH

This paper examines the absence of the book‐to‐market equity (BM) effect in the Taiwan stock market, applying the BM decomposition proposed by Daniel and Titman (2006 ). First, we do not observe a significantly negative correlation between future stock return and intangible return on research‐and‐development‐intensive firms in Taiwan, which is inconsistent with the US evidence documented by Daniel and Titman. Second, undervaluation of research‐and‐development‐intensive firms possibly leads to the absence of the BM effect. Those firms, most of which have low BM, perform well not only in the past, but also in the future, thereby obscuring the BM effect.     

A COMPENSATING DIFFERENTIAL APPROACH TO VALUING THE SOCIAL BENEFIT OF MINOR LEAGUE BASEBALL

This research utilizes a compensating differential framework to measure the social benefits of minor league baseball teams. Consistent with findings at the major league level, individual housing observations from 138 metropolitan areas between 1993 and 2005 show that affiliated teams are associated with a significant 6 to 8% increase in rents in mid‐sized markets ranging from 0.4 to 1.4 million people. On the other hand, independent teams and stadiums are associated with insignificant effects on rents. The positive effect of affiliated minor league teams suggests they are a valuable urban amenity that can contribute to local quality of life. (JEL H23, H41, H71, R50, L83)     

MODELING THE INCIDENCE OF SELF‐EMPLOYMENT: INDIVIDUAL AND EMPLOYMENT TYPE HETEROGENEITY

Modeling the incidence of self‐employment has traditionally proved problematic. Although the supply‐side characteristics of the self‐employed are well documented, we argue that the literature has neglected demand‐side aspects. We explore the determinants of self‐employment using the U.S. Survey of Consumer Finances. We present results from an econometric framework that allows us to model, separately and simultaneously, the influences of individual heterogeneity (i.e., supply‐side factors) and employment type heterogeneity (i.e., demand‐side factors) on the probability of self‐employment. Our findings suggest that while individual characteristics are important determinants of self‐employment, there are factors specific to the type of employment that influence self‐employment. (JEL J23, J33, C25, C10)     

ADMINISTRATIVE CHANGE IN THE EU: A CROSS‐COUNTRY EMPIRICAL STUDY ON THE CONTEXTUAL DETERMINANTS OF NPM REFORM RHETORIC

Framed within the paradigm of New Public Management (NPM), structural reforms in the EU aimed at modernizing the public administrations of Member States (MSs) have long since been a priority area of the EU's economic policy. Since the 1990s, these reforms have been sharply intensified across European countries with the declared purpose of enhancing economy, efficiency and effectiveness in their national public sectors’ organizations. In line with the European Commission's recent research initiatives in search for novel quantitative data on NPM in the EU, this paper studies European parties’ NPM reform rhetoric. More specifically, it investigates the MSs’ institutional, economic and political context within which parties have declared their intention of reforming national administrative systems. Thus, it sheds light on the MSs’ domestic factors that are associated with the diffusion of the NPM values across the political discourse of EU's national parties.     

CROSS‐BORDER M&As AND FIRM VALUE: A COMPARISON OF CHINA‐ AND US‐JAPAN M&As

We examine the effect of M&As conducted by U.S. and Chinese bidders (US‐Japan and China‐Japan M&As) on the stock prices of Japanese targets. We find that both types of M&As tend to increase the stock prices of the Japanese targets and that market reactions are significantly greater for US‐Japan M&As than for China‐Japan M&As. Additionally, capital participation produces greater market reactions to China‐Japan M&As than other structures, while acquisition produces this effect in US‐Japan M&As. Our results are consistent with previous research indicating that market reactions increase for bidders operating in a developed country with high‐quality institutions and corporate governance. (JEL G32, G34)     

PATENT POOLS AND CROSS‐LICENSING IN THE SHADOW OF PATENT LITIGATION*

This article develops a framework to analyze the incentives to form a patent pool or engage in cross‐licensing arrangements in the presence of uncertainty about the validity and coverage of patents that makes disputes inevitable. It analyzes the private incentives to litigate and compares them with the social incentives. It shows that pooling arrangements can have the effect of sheltering invalid patents from challenges. This result has an antitrust implication that patent pools should not be permitted until after patentees have challenged the validity of each other's patents if litigation costs are not too large.     

FISCAL DECENTRALIZATION AND ECONOMIC VOLATILITY: EVIDENCE FROM STATE‐LEVEL CROSS‐SECTION DATA OF THE USA*

This paper examines the implications of fiscal decentralization for economic stability. It has been discussed that fiscal decentralization reduces the variance of GDP growth, due to the greater diversification of performance across jurisdictions. We examine this theoretical result using a panel data set of the 50 states of the USA over the period of 1992–1997. We show that the theoretical specification of the production function is supported. We also show a negative significant relationship between fiscal decentralization and economic volatility. The results are robust when we take into account the endogeneity of fiscal decentralization.     

CROSS‐COUNTRY CAUSES AND CONSEQUENCES OF THE 2008 CRISIS: INTERNATIONAL LINKAGES AND AMERICAN EXPOSURE

We model the causes of the 2008 financial crisis together with its manifestations, using a cross‐country multiple indicator multiple cause model. We consider both national and, critically, international linkages between countries and potential crisis ‘epicentres’, including the United States. A country holding an epicentre's securities is exposed through a financial channel, while a country that exports to that epicentre is exposed through a real channel. We are unable to find strong evidence that international linkages can be associated with crisis incidence. In particular, exposure to the United States in either form has little impact. If anything, it appears to help.